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Henry and Emma subscribed for shares in a new venture, FitFlex Ltd. The issued share capital of the new company was 100,001 with a nominal value of £1 each. Henry subscribed for 20,000 shares and paid £5,000, the remainder being unpaid. Emma subscribed for 30,000 shares and paid £10,000, the remainder being unpaid. This capital was used to purchase machinery and pay advance rent for premises. After 12 months, the company went into insolvent liquidation, owing £40,000 to various creditors.
What is the liability of Henry and Emma?
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When a limited company goes into liquidation, the shareholders' liability is limited to the unpaid portion of their shares. Thus, Henry is liable to contribute £15,000 (the unpaid amount on his shares), and Emma is liable to contribute £20,000 (the unpaid amount on her shares). This liability is to be paid to the company liquidator, who will then distribute the funds to the creditors. It is irrelevant whether one of the shareholders has no funds to pay the liability; the remaining shareholders' liability remains limited to the unpaid portion on their shares, ensuring that the burden is proportionately allocated based on the unpaid amounts.
Key Point: Under the Companies Act 2006, shareholders of a limited company are only liable to the extent of their unpaid shares. This limitation of liability protects shareholders from personal financial risk beyond their initial investment, but it also requires them to fulfil their obligations up to the amount they have committed to pay for their shares.
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